Raghu Bhai You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for$60,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it willbe sold after three years for $20,900. Use of the truck will require an increase in NWC (spare parts inventory) of $2,900. The truck willhave no effect on revenues, but it is expected to save the firm $20,300 per year in before-tax operating costs, mainly labor. The firm'smarginal tax rate is 21 percent.What will the cash flows for this project be?Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.FCFYear40123

Step 1: Calculate the initial cash outflows at Year 0Purchase of the truck: $60,000Increase in net…

Answered: You have been asked by the president of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $50,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it will be sold after three years for $19,100. Use of the truck will require an increase in NWC (spare parts inventory) of $1,100. The truck will have no effect on revenues, but it is expected to save the firm $17,200 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Year 1 2 3 FCF
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